SUMMARY OF FINANCIAL RESULTS (REIT)

Transcription

1 SUMMARY OF FINANCIAL RESULTS (REIT) Jan. 18, 2019 Name of Issuer: Nippon Prologis REIT, Inc. ( NPR ) Stock Exchange Listing: Tokyo Stock Exchange Securities Code: 3283 Website: reit.co.jp/en/ Representative Masahiro Sakashita, Executive Director Name of Asset Manager: Representative: Inquiries: Prologis REIT Management K.K. Masahiro Sakashita, President and CEO Atsushi Toda, Director and Chief Financial Officer TEL: Scheduled Date of Filing of Securities Report: Feb. 27, 2019 Scheduled Date for Commencement of Distributions Payments: Feb. 15, 2019 Supplementary Materials for Financial Results: Yes No Investors & Analysts Meeting: Yes No 1. Financial Results for the Fiscal Period ended Nov. 30, 2018 (12th Fiscal Period) (June 1, 2018 to Nov. 30, 2018) (Values are rounded down to the nearest million yen) (1) Operating Results (Percentages indicates percentage change from the previous period) Operating revenues Operating income Ordinary income Profit Period ended Millions of yen % Millions of yen % Millions of yen % Millions of yen % Nov. 30, , , , , May 31, ,435 (4.4) 8,803 (14.8) 8,076 (15.9) 8,075 (15.9) Profit per unit Return on unit holders equity Ratio of ordinary income to total assets Ratio of ordinary income to operating revenues Period ended Yen % % % Nov. 30, , May 31, , (2) Distributions Distributions Total of Distributions Total of per unit distributions Ratio of per unit SCD distributions (including (including Total of SCD Payout ratio distributions (excluding per unit (excluding SCD) SCD) to net assets SCD) SCD) Period ended Yen Yen Yen Millions of yen Millions of yen Millions of yen % % Nov. 30, ,429 3, ,681 8, May 31, ,373 3, ,559 8,074 1, * SCD stands for the Surplus Cash Distributions. (e 1) (e 2) (e 3) Total of SCD is the return of invested capital, which falls under the distributions through the reduction in unit holders capital for tax purposes The ratios of net asset value attributable to a reduction in unit holders paid in capital for the fiscal periods ended Nov. 30, 2018 and May 31, 2018, are and 0.005, respectively. The payment of SCD is deemed a return of capital. This calculation methodology is pursuant to Article 23, Paragraph 1, Item 3 of the Act on Special Measures Concerning Taxation. As there was issuance of new investment units during 11th fiscal period and accordingly there was changes of outstanding investment units, the following formula was used for the calculation of payout ratio: Payout ratio = Total distributions (excluding SCD) / Net income * 100

2 (3) Financial Position Total assets Net assets Ratio of unit holders equity to total assets Net asset per unit Period ended Millions of yen Millions of yen % Yen Nov. 30, , , ,185 May 31, , , ,574 (4) Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at the end of the fiscal period Period ended Millions of yen Millions of yen Millions of yen Millions of yen Nov. 30, ,689 (5,728) (4,896) 29,116 May 31, ,436 43,820) 30,225 24, Earnings Forecasts for the Fiscal Period ending May 31, 2019 (13th Fiscal Period) (from Dec. 1, 2018, to May 31, 2019) and Nov. 30, 2019 (14th Fiscal Period) (from June 1, 2019, to Nov. 30, 2019) Operating revenues Period ending Millions of yen % Operating income Ordinary income Millions of y en % Millions of yen % Profit Millions of yen (Percentages indicate change from the previous period) Distributions per unit (including SCD) Distributions per unit (excluding SCD) SCD % Yen Yen Yen May 31, , ,093 (3.1) 8,404 (3.5) 8,403 (3.5) 4,431 3, Nov 30, ,708 (2.7) 9,043 (0.6) 8,340 (0.8) 8,339 (0.8) 4,403 3, (Reference) Forecasted Profit per unit for the fiscal period ending May 31, 2019: 3,844 yen Forecasted Profit per unit for the fiscal period ending Nov. 30, 2019: 3,814 yen 3. Other (1) Changes in Accounting Policies, Accounting Estimates or Restatements (a) Changes in Accounting Policies due to Revisions to Accounting Standards None and Other Regulations (b) Changes in Accounting Policies due to Other Reasons None (c) Changes in Accounting Estimates None (d) Restatements None (2) Number of Investment Units Issued and Outstanding Number of investment units issued and outstanding at the end of the fiscal period including treasury units: As of Nov. 30, ,185,950 units As of May 31, ,185,950 units Number of treasury units at end of period: As of Nov. 30, units As of May 31, units * The Implementation Status of Statutory Audit At the time of this financial report, the audit procedures for the financial statements pursuant to the Financial Instruments and Exchange Act have not yet been completed. * Explanation on the Appropriate Use of the Forecast of Results and Other Matters of Special Consideration The forward looking statements in this material are based on information currently available to us and on certain assumptions that we believe are reasonable. Actual operating performance may differ substantially due to various factors. Furthermore, those statements shall not be deemed a guarantee or any commitment of the amount of future distributions and surplus cash distributions. Please refer to Assumptions for the forecasts for fiscal periods ending May 31, 2019 (13th Fiscal Period) and Nov. 30, 2019 (14th Fiscal Period) on page 8 for assumptions regarding forward looking statements.

3 Index 1. Organizational Structure of Investment Corporation Management Policies and Results of Operations (1) Management Policies... 2 (2) Results of Operations... 2 (I) Overview of the Eleventh Fiscal Period ended May 31, (i) Major Operational Results of NPR... 2 (ii) Operational Results of the Eleventh Fiscal Period ended May 31, (iii) Overview of Financing... 3 (iv) Overview of Financial Results and Distributions... 3 (II) Outlook for Next Fiscal Period... 4 (i) Future Management Policies and Issues... 4 (ii) Significant Subsequent Events... 6 (iii) Earnings Forecast Financial Statements (1) Balance Sheet (2) Statement of Income (3) Statement of Unit Holders Equity (4) Statement of Cash Distribution (5) Statement of Cash Flows (6) es Concerning Going Concerns Assumption (7) es Concerning Significant Accounting Policies (8) es on Changes in Presentation or Classification (9) es to Financial Statements (10) Change in Number of Investment Units Issued and Outstanding Change of Directors Reference Information (1) Composition of NPR s Assets (2) Overview of the Portfolio (I) Overview of Assets Held (acquisition price, book value, appraisal value as of the end of the reporting fiscal period and others) (II) Overview of Assets Held (property age, occupancy rate and annual rent) (3) Capital Expenditures for Owned Properties (I) Future Plans for Capital Expenditure (II) Capital Expenditure Incurred for the Reported Fiscal Period (4) Information Concerning Major Tenants (I) Major Tenants (tenants accounting for more than 10 percent of aggregate leased area) (II) Information Related to Major Properties (properties accounting for more than 10 percent of aggregate property related revenue) (5) Overview of Property Leasing and Status of Operating Income

4 1. Organizational Structure of Investment Corporation No significant changes have occurred to the organizational structure of the investment corporation since the most recent securities report (filed Aug. 30, 2018); therefore, their descriptions are not stated here. 2. Management Policies and Results of Operations (1) Management Policies No significant changes have occurred to investment policies, investment targets and distribution policies since the most recent securities report (filed Aug. 30, 2018) and extraordinary report (filed Nov. 22, 2018); therefore, their descriptions are not stated here. (2) Results of Operations (I) Overview of the Twelfth Fiscal Period ended Nov. 30, 2018 (i) Major Operational Results of NPR NPR was established on Nov. 7, 2012, based on the Act on Investment Trust and Investment Corporation (investment trust law) and was listed on the REIT Securities Market (J REIT Market) of the Tokyo Stock Exchange ( TSE ) on Feb. 14, 2013 (securities code: 3283). NPR is a real estate investment trust (REIT) that invests in logistics real estate with the sponsorship of the Prologis Group (*1), the global leader in logistics real estate. NPR focuses on investing in logistics facilities, targeting high quality, Class A properties that meet the demands of tenant logistics companies and other users with respect to operational efficiency, and which fulfill certain size, location, equipment, convenience and safety criteria. NPR aims to maximize its unit holder value through stability in rental revenues and steady growth of its portfolio and by optimizing the value of its portfolio. NPR acquired 12 properties (aggregate acquisition price: 173,020 million yen) on Feb. 15, 2013, following its listing, and acquired an additional 30 properties in total (aggregate acquisition price: 404,180 million yen) and disposed 2 properties (aggregate acquisition price: 16,870 million yen) by the fiscal period ended May 31, 2018 (eleventh fiscal period). NPR acquired an additional property (acquisition price: 5,440 million yen) during the reporting fiscal period. As a result, NPR owned 41 properties (aggregate acquisition price: 565,770 million yen), all of which are Class A facilities developed by the Prologis Group, as of the end of the reporting fiscal period (*2). In addition, NPR has acquired Prologis park Tsukuba 1 A (acquisition price:12,900 million yen) on Dec. 3, 2018, and therefore, its settlement was yet to be completed as of the end of reporting fiscal period, based on the purchase and sale agreement executed on Feb. 26, 2018 (*3). (*1) The Prologis Group is a group of Prologis, Inc. and its affiliates, which include Prologis K.K., a Japanese subsidiary, and various special purpose vehicles or joint ventures where the ownership of the Prologis Group may be less than a majority. The global parent company, Prologis, Inc., is a real estate investment trust headquartered in the United States and listed on the New York Stock Exchange (NYSE: PLD). (*2) Considering Funabashi 5 and the Annex to Funabashi 5 as a single property; the Annex to Funabashi 5 was not developed by the Prologis Group and considered by itself does not qualify as a Class A logistics facility. (*3) Please refer to Page 6 Significant Subsequent Events for further details. (ii) Operational Results of the Twelfth Fiscal Period ended Nov. 30, 2018 In the Japanese logistics real estate market, we believe that the fundamental demand for Class A logistics facilities continues to increase as NPR s customers (logistics space users) move from older and smaller buildings to larger, more advanced facilities. In our view, this shift is a result of the ongoing reconfiguration of Japan s supply chain, triggered by (i) the transition from manufacturing to services, migration of manufacturing to overseas locations, continuous expansion in global trade and economic, industrial and social structural changes inside and outside of Japan, and (ii) the expansion of e commerce and third party logistics (3PL) providers. We recently observed new entrants into the modern logistics real estate market, and developments and completions of large scale multi tenant logistics facilities are on the rise. Such new supply was temporarily increasing the overall vacancy rates of large scale multi tenant logistics facilities, especially in certain submarkets. However, the logistics facilities, which have once been stabilized such as NPR s portfolio, continue to maintain high occupancy rates. Overall, we think the supply/demand balance of the modern logistic 2

5 facilities is going to be stabilized because newly supplied logistics space are being steadily absorbed in certain submarkets, where the supply/demand balance had temporarily become loose due to the concentric over supply of the modern logistic facilities, and vacancy rate in such areas started to decrease. Under these circumstances, the occupancy rate of NPR s portfolio remained high, at 98.9 percent as of the end of the reporting fiscal period, backed by the competitive advantages of our portfolio and the strong leasing support from the sponsor, the Prologis Group. (iii) Overview of Financing (a) Borrowings NPR refinanced a 6,300 million yen short term loan on Aug. 8, This short term loan was subsequently prepaid with the net proceeds from NPR s first Green Bonds (the investment corporation bonds) of 6,000 million yen issued on Aug. 17, 2018 and cash on hands. In addition, NPR borrowed a 5,000 million yen of long term loan on Oct. 1, 2018 for the acquisition of a new property and payment of ancillary costs and expenses. As a result, the ending balance of NPR s interest bearing debt was 211,000 million yen, out of which investment corporation bonds accounted for 18,000 million yen as of the end of the reporting fiscal period. NPR s loan tovalue ratio (the ratio of aggregate balance of interest bearing debt, including bank loans and the outstanding balance of long term and short term investment corporation bonds to NPR s total assets, hereinafter LTV ) was 36.8 percent as of the end of the reporting fiscal period. (b) Credit Rating NPR s credit ratings as of the end of the reporting fiscal period (Nov. 30, 2018) were as follows: Rating Agency Rating Object Rating Outlook Long term issuer rating AA Stable Japan Credit Rating Agency, Ltd. Ratings on bonds AA (iv) Overview of Financial Results and Distributions As a result of these investment activities and financings, NPR generated operating revenues of 19,726 million yen, operating income of 9,379 million yen, ordinary income of 8,710 million yen and profit of 8,709 million yen for the reporting fiscal period. NPR s distributions for the reporting period are 3,984 yen per unit, which include NPR s profit distributions in deductible expenses in accordance with the Section 1 of Article of the Act on Special Taxation Measures Law (a customary practice of J REITs). The distribution amount was determined to distribute all unappropriated retained earnings for the reporting period, excluding fractions less than one yen. In addition, NPR intends to regularly distribute cash in excess of the amount of retained earnings ( Regular Surplus Cash Distributions ) in each fiscal period in accordance with a distribution policy set forth in its articles of incorporation (*1). Furthermore, to maintain the stability of NPR s distributions per unit ( DPU ) in the event that DPU are expected to decline to a certain degree as a result of financing activities, such as the issuance of new investment units, etc., which may cause NPR to incur short term dilution of investment units and/or substantial increases in financing related costs, as well as, certain inevitable and one time events such as repair expenses and capital losses due to damages caused by natural disasters (e.g., earthquakes), accidents/incidents (e.g., fire), and/or other one time expenses such as litigation settlements and capital losses from property dispositions, etc., NPR may make distributions as one time surplus cash distributions ( One time Surplus Cash Distributions, collectively with the Regular Surplus Cash Distributions, SCD or SCDs ) (*2). For the reporting fiscal period, the amount of NPR s Regular Surplus Cash Distributions was 972 million yen, equivalent to 28.5 percent of NPR s depreciation expense of 4,293 million yen for the reporting fiscal period, net of 249 million yen as a portion of onetime revenue caused as a result of one tenant s penalty payment for a lease cancellation at Joso, exceeding the amount of originally anticipated rental revenue from the subject lease for the reporting period. Consequently, the total amount of SCD per unit for the reporting fiscal period was determined at 445 yen (*3). (*1) Going forward, NPR intends to distribute regular surplus cash distributions on a regular basis in an amount no higher than 60 percent of its depreciation expense for an applicable fiscal period, while pursuing other uses of capital such as maintenance expenses, capital expenditures, repayment of borrowings and funding of new acquisitions. In the meantime, NPR intends to regularly distribute approximately 30 percent of depreciation expense for an applicable fiscal period. However, NPR may adjust, reduce, or suspend the amount of SCD for a particular fiscal period, as a whole or 3

6 partially, with considerations toward a level of NPR s profitability for a particular fiscal period which reflects the NPR s net income and one time profits arising as capital gains from asset disposition and/or penalties received from lease contract cancellations, etc., the total amount of distributions which include SCD, NPR s LTV ratio, credit rating, and financial conditions, as well as, macroeconomic, real estate market conditions. (*2) NPR intends to maintain the maximum amount of total SCD, which is the sum of the Regular Surplus Cash Distributions and the One time Surplus Cash Distributions, in an amount no higher than 40 percent of its depreciation expense for an applicable fiscal period. (*3) NPR estimates that the amount of anticipated semi annual average of emergency or short term repair and maintenance expenses and medium to long term repair and maintenance expenses is 417 million yen. This assessment was conducted in the engineering report for each property prepared by Earth Appraisal Co., Ltd and Tokio Marine & Nichido Risk Consulting Co., Ltd. NPR determines the amount of SCD, and distributes SCD, while focusing on maintaining its financial stability in addition to factors such as the current economic and real estate market environment, NPR s LTV and potential impacts on NPR s credit rating. Please note that the amount of SCD will be deducted from the balance of NPR s unit holders equity upon payment. (II) Outlook for Next Fiscal Period (i) Future Management Policies and Issues (a) Basic Policies NPR, along with Prologis REIT Management K.K. (the Asset Manager ), will continue to aim to maximize NPR s unit holder value through focused investments in and operations of our Class A logistics facilities. To achieve our external and internal growth objectives, NPR and the Asset Manager intend to fully utilize the sponsor support agreement entered into with the Prologis Group. NPR and the Asset Manager expect to generate future growth by taking advantage of a strong pipeline of support from the Prologis Group and its global customer network, operational expertise and other management resources. The Prologis Group is a leading logistics real estate company and pioneer of the development of Class A logistics facilities in Japan. It plans to continue to actively develop Class A logistics facilities in the region. Through cooperation with the Prologis Group, NPR believes it can provide unique opportunities for its unit holders to invest in high quality logistics facilities developed by the Prologis Group. NPR and the Asset Manager will concentrate solely on owning and operating logistics facilities, while the Prologis Group will focus on development and property management. Through these delineated roles, NPR believes it can minimize potential conflicts of interest with the sponsor and efficiently manage and grow its portfolio. (b) External Growth Strategies Pursuant to the sponsor support agreement, as of Dec. 31, 2018, NPR held exclusive negotiation rights granted from the Prologis Group for 8 properties. The Prologis Group will continue to develop new assets of approximately 40 to 60 billion yen every year in Japan, and development plans for 7 development properties have been announced. NPR is entitled to receive exclusive negotiation rights for logistics facilities that will be developed, owned or operated by the Prologis Group once these facilities achieve stabilization to the extent that those facilities qualify for NPR s investment criteria. All acquisitions are subject to the related party transaction guidelines of the Asset Manager to ensure appropriate terms and conditions. Properties with Exclusive Negotiation Rights Property name Location Exclusive Negotiation Rights Granted Date GFA Chiba New Town Inzai, Chiba Dec. 14, ,981 m 2 Higashimatsuyama Higashimatsuyama, Saitama Dec. 5, ,885 m 2 Sendai Izumi 2 Sendai, Miyagi Dec. 15, ,589 m 2 Kyotanabe Kyotanabe, Kyoto Dec. 15, ,503 m 2 MFLP Kawagoe 117,337 m 2 Kawagoe, Saitama Dec. 15, 2017 (50% co ownership) (e) 4

7 Property name Location Exclusive Negotiation Rights Granted Date GFA Kobe 4 Kobe, Hyogo Dec. 14, ,767 m 2 Tsukuba 1 B Tsukuba, Ibaraki Dec. 14, ,595 m 2 Chiba 1 Chiba, Chiba Dec. 14, ,005 m 2 (e) Prologis Group affiliate retains a 50% co ownership of MFLP Kawagoe. However, the above figure of the gross floor area represents the entire property. Properties under planning by Prologis Group Property name Location GFA Kobe 3 Kobe, Hyogo 38,700 m 2 Ebina 2 Ebina, Kanagawa 39,000 m 2 Kobe 5 Kobe, Hyogo 46,000 m 2 Chiba 2 Chiba, Chiba 66,000 m 2 Soka Soka, Saitama 151,000 m 2 Ogori Ogori, Fukuoka 29,000 m 2 Inagawa Project Inagawa, Hyogo 258,000 m 2 The Asset Manager will also pursue acquisitions of properties from third parties. In those cases, both the status of the acquisition pipeline from the Prologis Group and the conditions of the real estate market will be considered. (c) Internal Growth Strategies All leases for NPR s portfolio are in the form of fixed term lease contracts. Consistent with NPR s investment strategy, approximately 80 percent (based on acquisition price) of NPR s portfolio comprises multi tenant logistics facilities that basically have lease terms of five years with diversified multiple tenants, resulting in a diversified lease maturity schedule. With the staggered lease maturities and a diversified tenant base, NPR is able to gradually increase profitability as leases are renewed and re tenanted in an improving market environment while we mitigate tenant credit concentration risks and lease up risks at lease maturities. Fundamentally, total current stock of Class A logistics facilities in Japan remains significantly small in light of anticipated tenant demand and, as a result, we have observed gradual rent growth in the past couple of years. Recently, as new entrants to Japanese logistics real estate development business continued, the number and volume of new developments and completions is increasing. However, we believe we would be able to minimize potential impact from this supply on our existing portfolio by closely monitoring the status of the supply/demand balance and leveraging the collaboration between the Asset Manager and the Prologis Group to conduct organized proactive leasing activities. For build to suit logistics facilities, lease terms are typically 10 to 15 years. NPR and the Asset Manager believe that building a portfolio by blending the two different property types multi tenant and build to suit will maximize both cash flow stability and portfolio diversity. NPR and the Asset Manager receive support based on the sponsor support agreement with the Prologis Group in connection with property management, market research and human resources. In addition, NPR is able to attract a greater number of tenants by accessing the Prologis Group s global customer network, providing further tenant diversification and earnings stability. (d) Financing Strategies NPR and the Asset Manager intend to implement strategic and flexible financing strategies to maximize NPR s medium to longterm profitability, steady growth of its portfolio/value and stability/efficiency of asset management. NPR intends to issue new investment units to grow its portfolio in the long term, with thorough consideration of timing, fully considering and analyzing the status of capital markets/economic environment, acquisition timing of new properties and NPR s capital structure and potential impacts on existing unit holders. With regard to debt financing such as bank loans, NPR seeks financing with long term stability by fixing most interest rates for the long term. NPR will manage its balance sheet as a stabilized LTV of approximately 50 percent (with an upper limit of 60 percent) to maintain its sound financial status. NPR intends to borrow 5

8 from financial institutions that hold the potential for sustainable long term relationships. In addition, NPR will continue to consider issuance of investment corporation bonds to diversify sources of debt financings. (ii) Significant Subsequent Events (a) Borrowings On Dec. 3, 2018, NPR borrowed bank loans (the Borrowings ), which were based on a resolution made by the board of directors on Nov. 22, 2018, for the purpose of funding the acquisition costs of a new property and related expenses described in the following (b) Acquisition of Asset. Category Lender Borrowing Amount Interest Rate Borrowing Date Repayment Date Repayment Method Collateral Short term Sumitomo Mitsui Banking Corporation MUFG Bank, Ltd. 4,550 million yen 1,950 million yen Base interest rate (JBA 1 month Japanese yen TIBOR) +0.17% Dec. 3, 2018 Nov. 29, 2019 Paid in full upon maturity Unsecured and nonguaranteed (b) Acquisition of Asset As resolved by the board of directors on Feb. 26, 2018 and Nov. 22, 2018, in line with basic investment guidelines defined in its Articles of Incorporation, NPR acquired a property described below on Dec. 3, 2018 with proceeds from the Borrowings described in (a) Borrowings above and cash on hand. Property name Tsukuba 1 A Location Class of assets Acquisition date Dec. 3, , Tokodai, Tsukuba, Ibaraki 5 6 2, Tokodai, Tsukuba, Ibaraki Real estate trust beneficiary interests Acquisition price 12,900 million yen (e 1) Appraisal Value 12,900 million yen (e 2) Land Building Ownership form Proprietary Land area 32, m 2 Ownership form Proprietary Gross floor area 65, m 2 Date of construction Sep. 4, 2018 (e 3) Use Structure/No. of stories Warehouse, Office S, 4 story building e 1: Acquisition price is represented by an amount of the purchase price stated in the Purchase and Sale Agreement of Trust Interest, which does not include the consumption taxes and local consumption taxes. The Acquisition Price does not reflect expenses associated with the acquisition. e 2: Appraisal Value is based on an appraisal report dated Sep. 30, 2018 provided by Jones Lang LaSalle K.K., e 3: This property is constructed so as to constitute (under the Building Standards Act) a single building together with Tsukuba 1 B, which is currently under construction on an adjacent land site. These properties are scheduled to be developed and utilized as one complex. The date of completion above represents the scheduled date of constructions work of the property which does not include Tsukuba 1 B, and differs from the date of construction of the entire complex. 6

9 (iii) Earnings Forecast Period ending May 31, 2019 (13th period) Period ending Nov. 30, 2019 (14th period) (e) Operating revenues (Millions of yen) Operating income (Millions of yen) Ordinary income (Millions of yen) Profit (Millions of yen) Distributions per unit (including surplus cash distributions) (yen) Distributions per unit (excluding surplus cash distributions) (yen) Surplus cash distributions per unit (yen) 20,245 9,093 8,404 8,403 4,431 3, ,708 9,043 8,340 8,339 4,403 3, Forecast calculations are based on the assumptions as of the date hereof. Actual operating revenues, operating profit, ordinary income, profit, distributions per unit (excluding surplus cash distributions), and surplus cash distributions per unit may vary due to changes in NPR s operational environment and circumstances including acquisitions or sales of properties, changes in rent revenues attributable to tenant movement, unexpected repair, changes in interest rates or issuance of additional investment units. Therefore, these forecasts should not be deemed a commitment or guarantee of the amount of future cash distributions. 7

10 Assumptions for the forecasts for the fiscal periods ending May 31, 2019 (13th Fiscal Period) and Nov. 30, 2019 (14th Fiscal Period) Item Assumption Fiscal period ending May 31, 2019 (13th fiscal period) (from Dec. 1, 2018 to May 31, 2019) (182 days) Accounting period Fiscal period ending Nov. 30, 2019 (14th fiscal period) (from June 1, 2019 to Nov. 30, 2019) (183 days) Portfolio of Investment Assets Held Operating revenues Operating expenses Non operating expenses Borrowings and bonds In addition to its 41 properties held as of the end of the reporting fiscal period, NPR acquired Prologis Park Tsukuba 1 A on Dec. 3, It is assumed there will be no change (including acquisition of new properties and dispositions of existing properties) in the operational status of the properties, other than the acquisition of Tsukuba 1 A, until Nov. 30, The actual results may vary due to unscheduled acquisitions of new properties or dispositions of existing properties, etc. Operating rental revenues are estimated, by taking into account factors such as market trends and competitiveness of NPR s properties, to be 20,245 million yen and 19,708 million yen for the periods ending May 31, 2019 and Nov. 30, 2019, respectively. The expected average occupancy rates are estimated to be 98.2 percent and 97.9 percent for the periods ending May 31, 2019 and Nov. 30, 2019, respectively. For operating rental revenues, it is assumed that tenants will pay rents without delinquency or withholding. It is assumed that an insurance payment will be received and accounted as an operating revenue, which is equivalent to the amount of building repair expenses of 613 million yen caused by the damage from two typhoons that hit Japan in Sep. 2018, during the period ending May 31, Expenses except depreciation are calculated by taking into account variable factors such as seasonal factors and are assumed to be 4,836 million yen and 4,338 million yen for the periods ending May 31, 2019 and Nov. 30, 2019, respectively. Depreciation expenses, including ancillary costs associated with property acquisitions, are calculated using the straight line method and are assumed to be 4,499 million yen and 4,514 million yen for the periods ending May 31, 2019 and Nov. 30, 2019, respectively. Property taxes and city planning taxes are generally included in the purchase price of properties on a pro rated basis for a calendar year of acquisition and start to be expensed from the next calendar year. Accordingly, property taxes and city planning taxes for Ichikawa 3, Narita 1 D, Yoshimi (the Acquisitions in the 11th Fiscal Period ), Koga 3, and Tsukuba 1 A will start to be expensed from the fiscal period ending May 31, The total amount of property taxes and city planning taxes included in the purchase price is assumed to be 26 million yen for the period ending May 31, 2019 (equivalent to expenses for 31 days for the Acquisitions in the 11th Fiscal Period and Koga 3, and 29 days for Tsukuba 1 A). With respect to building repair expenses, the amount assumed to be necessary for each property is calculated based on the repair and maintenance plans of the Asset Manager. However, actual repair expenses may be substantially different from the expected amount due to certain unanticipated factors. It is assumed that an insurance payment will be received and accounted as an operating revenue, which is equivalent to the amount of building repair expenses of 613 million yen caused by the damages from two typhoons that hit Japan in Sep. 2018, during the period ending May 31, As for interest expenses and other debt related costs, 680 million yen and 683 million yen are expected for each of the periods ending May 31, 2019 and Nov. 30, 2019, respectively. The debtrelated amortization, which is included in debt related expenses, is expected to be 177 million yen and 177 million yen for each of the periods ending May 31, 2019 and Nov. 30, The balance of NPR s interest bearing debt outstanding as of the date hereof is 217,500 million yen, including the balance of investment corporation bonds. A 6,500 million yen loan was borrowed on Dec. 3, 2018 in connection with the acquisition of Prologis Park Tsukuba 1 A. A 6,400 million yen loan was borrowed on Dec. 3, 2018 in connection with the repayment of longterm loan. It is assumed that we will fully refinance a 1,000 million yen long term loan that is due on Nov. 27, 8

11 Investment units Distributions per unit (excluding surplus cash distributions (SCD)) 2019, 2,000 million investment corporation bonds that are due on Nov. 27, 2019 and 6500 million yen short term loan that is due on Nov. 29, 2019, respectively. It is assumed that the number of investment units currently issued and outstanding will not change. Currently, there are 2,185,950 units issued and outstanding. Distributions per unit (excluding SCD) are calculated based on the premises of the distribution policy in the articles of incorporation of NPR that all profit shall be distributed. Distributions per unit (excluding SCD) may change considerably due to various factors including changes in operational environment arising from any additional acquisitions or dispositions of properties, changes in rent revenues attributable to tenant moves, occurrence of unexpected repairs, changes in interest rates and issues of new investment units in the future. SCD per unit is calculated based on the premises of the fund distribution policy contained in the articles of incorporation of NPR. It is assumed that SCD in the fiscal period ending May 31, 2019 and the fiscal period ending Nov. 30, 2019 will be 1,280 million yen and 1,285 million yen, respectively, which are equivalent to 28.5 percent of the amount of depreciation expenses assumed for the applicable fiscal periods. The amount of depreciation expenses may vary as a result of changes in the amount of total assets under management, ancillary costs, capital expenditures, the allocation of purchase price to each asset item, estimated depreciable life, etc. SCD, which will be based on the amount of depreciation expenses, may vary accordingly. NPR intends to pay SCD only to the extent that it can maintain appropriate levels of financial soundness and stability after considering alternatives of cash uses such as repairs and capital expenditures, repayment of borrowings and property acquisition opportunities. The maximum payable SCD amount is 60 percent of depreciation expenses during the applicable fiscal period. However, NPR may adjust, reduce, or suspend the amount of SCD for a particular fiscal period, as a whole or partially, with considerations toward a level of NPR s profitability for a particular fiscal period which reflects the NPR s net income and one time profits arising as capital gains from asset disposition and/or penalties received from lease contract cancellations, etc., the total amount of distributions which include SCD, NPR s LTV ratio, credit rating, and financial conditions, as well as, macroeconomic, real estate market conditions. Furthermore, to maintain the stability of NPR s distributions per unit ( DPU ) in the event that DPU are expected to decline to a certain degree as a result of financing activities, such as the issuance of Surplus cash new investment units, etc., which may cause NPR to incur short term dilution of investment units distributions (SCD) per unit and/or substantial increases in financing related costs, as well as, certain inevitable and one time events such as repair expenses and capital losses due to damages caused by natural disasters (e.g., earthquakes), accidents/incidents (e.g., fire) and/or other one time expenses such as litigation settlements and capital losses from property dispositions, etc., NPR may make distributions as onetime surplus cash distributions ( One time Surplus Cash Distributions, collectively with the Regular Surplus Cash Distributions, SCD or SCDs ) NPR intends to limit the maximum total amount of SCD at 40% of the depreciation expense for the relevant fiscal period. To determine the amount of SCD, NPR also considers the payout ratio of total distribution amount relative to adjusted funds from operations ( AFFO ). NPR defines AFFO as funds from operations ( FFO ) minus capital expenditures plus amortization of capitalized finance costs. FFO is defined as the sum of profit and non cash expenses. For calculations, please refer to the following formulas: FFO = profit + depreciation + property related amortization + loss on sale of real estate gain on sale of real estate AFFO = FFO capital expenditure + amortization of capitalized finance costs Capital expenditures are assumed to be 762 million yen and 730 million yen in the periods ending May 31, 2019 and Nov. 30, 2019, respectively. NPR does not plan to pay SCD in case such payment would cause the Distribution LTV, as defined below, to exceed 60 percent. Distribution LTV(%) = A / B x 100 A = interest bearing debt (including borrowings held in trust and investment corporation bonds) at the end of the fiscal period + balance of tenant leasehold deposits released at the end of the fiscal period B = total appraisal real estate value at the end of the fiscal period + the amount of cash deposits at 9

12 Others the end of the fiscal period the total amount distributions (including SCD) It is assumed that any revision that will have an impact on the forecast information above will be made with regard to the laws and regulations, tax system, accounting standards, listing rules of the Tokyo Stock Exchange and rules of the Investment Trusts Association, Japan, etc. It is assumed that no unexpected material change will arise in general economic trends and real estate market conditions. 10

13 3. Financial Statements (1) Balance Sheet 11 (Unit: Thousands of yen) As of May 31, 2018 As of Nov. 30, 2018 ASSETS Current assets: Cash and deposits 19,994,172 24,546,935 Cash and deposits in trust 4,057,793 4,569,560 Operating accounts receivable 1,537,088 1,520,049 Prepaid expenses 378, ,676 Consumption taxes receivables 1,319,143 Other current assets 4,025 18,254 Total current assets 27,290,969 31,003,476 Fixed assets: Property and equipment Buildings 7,555,149 7,555,149 Less: accumulated depreciation (961,767) (1,052,573) Buildings, net 6,593,381 6,502,576 Structures 249, ,739 Less: accumulated depreciation (99,042) (108,327) Structures, net 150, ,411 Tools, furniture and fixtures 5,434 5,434 Less: accumulated depreciation (2,691) (2,943) Tools, furniture and fixtures, net 2,742 2,490 Land 3,834,204 3,834,204 Buildings in trust 332,280, ,721,526 Less: accumulated depreciation (28,186,185) (32,125,295) Buildings in trust, net 304,094, ,596,230 Structures in trust 7,299,125 7,637,949 Less: accumulated depreciation (1,339,303) (1,618,762) Structures in trust, net 5,899,822 6,019,187 Machinery and equipment in trust 11,267 13,117 Less: accumulated depreciation (2,250) (2,590) Machinery and equipment in trust, net 9,016 10,526 Tools, furniture and fixtures in trust 735, ,846 Less: accumulated depreciation (234,147) (267,772) Tools, furniture and fixtures in trust, net 501, ,073 Other tangible assets in trust Less: accumulated depreciation (35) (35) Other tangible assets in trust, net 0 0 Land in trust 217,022, ,446,593 Construction in progress in trust 16,974 3,779 Total property and equipment 538,125, ,038,074 Intangible assets Other intangible assets in trust 11,820 11,087 Total intangible assets 11,820 11,087 Investments and other assets Long term prepaid expenses 1,662,057 1,535,142 Deferred tax assets Security deposit 10,000 10,000 Other Total investments and other assets 400 1,672, ,545,557 Total fixed assets 539,809, ,594,719

14 (Unit: Thousands of yen) As of May 31, 2018 As of Nov. 30, 2018 Deferred assets: Investment corporation bond issuance costs 52,333 82,479 Total deferred assets 52,333 82,479 Total assets 567,153, ,680,675 LIABILITIES Current liabilities: Operating accounts payable 1,088,428 1,609,655 Short term loans payable 6,300,000 Current portion of investment corporation bonds payable 2,000,000 Current portion of long term loans payable 6,400,000 7,400,000 Accounts payable 197, ,610 Accrued expenses 1,796,019 1,925,584 Accrued consumption taxes 804,872 Income taxes payable 1, Advances received 3,610,862 3,336,839 Other current liabilities 66,493 81,218 Total current liabilities 19,460,250 17,748,670 Non current liabilities: Investment corporation bonds payable 12,000,000 16,000,000 Long term loans payable 181,600, ,600,000 Tenant leasehold and security deposits 247, ,773 Tenant leasehold and security deposits in trust 13,766,843 13,855,824 Other non current liabilities Total non current liabilities 207,614, ,703,791 Total liabilities 227,075, ,452,462 NET ASSETS Unit holders equity Unit holders capital Unit holders capital, gross 338,516, ,516,767 Deduction of unit holders capital (6,515,132) (7,999,392) Unit holders capital 332,001, ,517,375 Surplus Unappropriated retained earnings (undisposed loss) 8,076,258 8,710,838 Total surplus 8,076,258 8,710,838 Total unit holders equity 340,077, ,228,213 Total net assets (*2) *2 340,077,894 *2 339,228,213 Total liabilities and net assets 567,153, ,680,675 12

15 (2) Statement of Income Operating revenues: For the period from Dec. 1, 2017 to May 31, 2018 (Unit: Thousands of yen) For the period from June 1, 2018 to Nov. 30, 2018 Operating rental revenues *1 17,173,631 *1 17,855,150 Other rental revenues *1 1,261,650 *1 1,870,554 Gain on sales of real estate properties *2 572 Total operating revenues 18,435,281 19,726,277 Operating expenses: Expenses related to property rental business (*1) *1 7,910,462 *1 8,503,051 Asset management fee 1,611,517 1,719,714 Asset custody fee 41,954 44,328 Directors compensation 4,800 5,600 Audit fee 15,000 15,000 Other operating expenses 47,639 58,994 Total operating expenses 9,631,374 10,346,689 Operating income 8,803,907 9,379,588 Non operating income: Interest income Reversal of distributions payable Gain on real estate tax settlement 279 Interest on refund of consumption taxes Total non operating income 1,892 1,411 Non operating expenses: Interest expenses 411, ,729 Interest expenses on investment corporation bonds 31,795 43,155 Amortization of investment corporation bond issuance costs 4,939 6,015 Borrowing related expenses 183, ,515 Investment unit issuance expenses 24,691 Offering costs associated with the issuance of investments unit 72,342 Others Total non operating expenses 729, ,600 Ordinary income 8,076,639 8,710,398 Income before income taxes 8,076,639 8,710,398 Incomes taxes current 1, Incomes taxes deferred (26) 13 Total income taxes 1, Profit 8,075,482 8,709,478 Retained earnings brought forward 776 1,359 Unappropriated retained earnings (undisposed loss) 8,076,258 8,710,838 13

16 (3) Statement of Unit Holders Equity The Reporting Period (from Dec. 1, 2017 to May 31, 2018) Balance at the beginning of the period Change during the period Issuance of new investments Dividends from surplus Unit holders capital, gross Unit holders capital Deduction of unit holders capital Unit holders equity Unit holders capital Unappropriat ed retained earnings (undisposed loss) Surplus Total surplus (Units: Thousands of yen) Total unit holders equity Total net assets 310,465,975 (6,515,132) 303,950,843 9,602,618 9,602, ,553, ,553,462 28,050,792 28,050,792 28,050,792 28,050,792 (9,601,842) (9,601,842) (9,601,842) (9,601,842) Profit 8,075,482 8,075,482 8,075,482 8,075,482 Total change during the period Balance at the end of the period 28,050,792 28,050,792 (1,526,360) (1,526,360) 26,524,431 26,524,431 *1 338,516,717 (6,515,132) 332,001,635 8,076,258 8,076, ,077, ,077,894 The Reporting Period (from June 1, 2018 to Nov. 30, 2018) Balance at the beginning of the period Change during the period Surplus cash distributions Dividends from surplus Unit holders capital, gross Unit holders capital Deduction of unit holders capital Unit holders equity Unit holders capital Unappropriat ed retained earnings (undisposed loss) Surplus Total surplus (Units: Thousands of yen) Total unit holders equity Total net assets *1 338,516,717 (6,515,132) 332,001,635 8,076,258 8,076, ,077, ,077,894 (1,484,260) (1,484,260) (1,484,260) (1,484,260) (8,074,899) (8,074,899) (8,074,899) (8,074,899) Profit 8,709,478 8,709,478 8,709,478 8,709,478 Total change during the period Balance at the end of the period (1,484,260) (1,484,260) 634, ,579 (849,680) (849,680) *1 338,516,717 (7,999,392) 330,517,375 8,710,838 8,710, ,228, ,228,213 14

17 (4) Statement of Cash Distribution I Unappropriated retained earnings (undisposed loss) II Distributions in excess of retained earnings For the period from Dec. 1, 2017 to May 31, 2018 (Unit: Yen) For the period from June 1, 2017 to Nov. 30, ,076,258,887 8,710,838,184 Deduction from unit holders capital 1,484,260, ,747,750 III Distributions 9,559,159,350 9,681,572,550 (Distributions per unit) (4,373) (4,492) Of which, distributions of retained earnings (Of which, distributions of retained earnings per unit) Of which, distributions in excess of retained earnings (Of which, distributions in excess of retained earnings per unit) 15 8,074,899,300 8,708,824,800 (3,694) (3,984) 1,484,260, ,747,750 (679) (445) IV Retained earnings carried forward 1,359,587 2,013,384 Calculation method of distribution amount Pursuant to the Policy on the Distribution of Funds as defined in Article 39, Paragraph 1 of Article 2 of incorporation of NPR, the amount of distributions shall be the amount that does not exceed the amount of profits but exceeds 90% of the distributable profit as defined in Article of the Special Taxation Measures Act. Based on the policy, NPR declared the distribution amount of 8,074,899,300 yen which was the amount equivalent to the maximum integral multiples of number of investment units issued and outstanding (2,185,950 investment units) as of the reporting fiscal period. In addition, based on the distribution policy as defined in Article 39, Paragraph 2 of incorporation, NPR shall make Surplus Cash Distributions (SCD) as a general principle, defined as distributions in excess of retained earnings, as a return of unit holders capital, each fiscal period on a continuous basis. Furthermore, NPR is per permitted to distribute One time Surplus Cash Distributions for the purpose of maintaining stable distributions per unit in the event that its distributions per unit is expected to temporarily dilute by a certain degree as a result of financing actions. Accordingly, NPR declared SCD of 1,165,111,350 yen, as a return of unit holders capital, which was the amount equivalent to approximately 28.5% of depreciation expense of 4,088,323,800 yen for the period. In addition, NPR Pursuant to the Policy on the Distribution of Funds as defined in Article 39, Paragraph 1 of Article 2 of incorporation of NPR, the amount of distributions shall be the amount that does not exceed the amount of profits but exceeds 90% of the distributable profit as defined in Article of the Special Taxation Measures Act. Based on the policy, NPR declared the distribution amount of 8,708,824,800 yen which was the amount equivalent to the maximum integral multiples of number of investment units issued and outstanding (2,185,950 investment units) as of the reporting fiscal period. In addition, based on the distribution policy as defined in Article 39, Paragraph 2 of incorporation, NPR shall make Surplus Cash Distributions (SCD) as a general principle, defined as distributions in excess of retained earnings, as a return of unit holders capital, each fiscal period on a continuous basis. Furthermore, NPR is per permitted to distribute One time Surplus Cash Distributions for the purpose of maintaining stable distributions per unit in the event that its distributions per unit is expected to temporarily dilute by a certain degree as a result of financing actions, as well as, certain inevitable and one time events such as repair expenses and capital losses due to damages caused by natural disasters (e.g., earthquakes), accidents/incidents (e.g., fire), and/or other one time

18 (e) made One time Surplus Cash Distributions of 319,148,700 yen based on an assessment of temporary earnings dilution of 146 yen per unit as a result of financing actions. expenses such as litigation settlements and capital losses from property dispositions, etc.,. Considering the amount of temporally revenue earned during the period, NPR declared SCD of 1,221,946,050 yen, which was the amount, excluding 249,198,300 yen as one time revenue, from 4,293,609,622 yen that amount is approximately 28.5% of depreciation expense for the period. NPR is permitted to distribute cash in excess of the amount of retained earnings if the amount of the accounting profit is smaller than 90% of its distributable retained earnings on a tax basis to the extent that such distribution amount does not exceed the amount of NPR s depreciation for the same fiscal period, and if NPR determines that such excess distribution amount is appropriate. Also, NPR is permitted to distribute cash in any amount to the extent that such amount is determined by NPR s board of directors and if the amount of distributions does not satisfy certain conditions of special tax treatment which NPR shall be eligible to otherwise. Please note that the amount of SCD shall be subtracted from the balance of unit holders paid in capital upon payment. 16